Posted by: Josh Lehner | October 19, 2017

Employment Reports, Preliminary Data, and Forecaster Bias

A few thoughts that help interpret the recent Oregon employment reports showing job losses. Keep in mind Oregon went through something similar in 2015 and, like then, our office is not worried today for one very important reason. (Hint: it’s wages)

First, Oregon’s economy has clearly slowed over the past year or two. No longer are we seeing full-throttle rates of growth. An economy digging out of a recession behaves differently than one approaching full employment. Oregon is transitioning down from peak growth rates to something more sustainable. At least until the next recession when we start the cycle anew.

Second, economic data gets revised. All the time. The very first release, when the data is preliminary, gets the most attention. However the conversation is just getting started even if no one sticks around to finish it.

Third, unfortunately, the economics profession has a clear culture of chasing the most recent data point. Economists know data is preliminary and will be revised. Economists know that one data point does not make a trend. And yet, if you track forecasters via the Wall Street Journal, or the Philly Fed, or the like, it shows that the tail wags the dog more often than we care to admit.

These three points are intersecting right now in Oregon. Last quarter, as our office prepared the forecast, we were seeing a string of 6,000 jobs per month gains from April through July. Those weren’t sustainable and marked a return to the peak rates. That didn’t make a whole lot of theoretical sense, nor did it match the withholdings coming out of Oregonian paychecks. But that’s what the employer survey data showed and we discussed this with our advisors.

As we wrote in the forecast, we basically treated the preliminary data as upside risk. We tried to frame the discussion around what conditions we’d need to see to support these strong gains, including faster population growth and higher labor force participation rates. We did not build the return to full-throttle growth into our forecast. At the end of the day our forecast is a budgetary planning tool. We are not going to let preliminary data wag the dog, particularly not when actual tax collections are not following suit.

It turns out this was the correct forecast. As seen in the first chart below, for whatever reason, the Current Employment Statistics (CES, aka the employer survey) appears to have gotten off track a bit and is now on a course correction. The Quarterly Census of Employment and Wage (QCEW) is a near universal record of jobs and wages, but lack timeliness. Just last week we got data for April, May, and June. Given the QCEW’s accuracy, every year the CES is benchmarked, or revised to more closely resemble its trends. I’m not here to fault BLS too much. Survey work is hard. But I am here to say we should always take preliminary data with a grain of salt.

While the employment data appears to be getting back on track, the primary reason our office is not concerned about the preliminary job losses is the fact that wages continue to grow in Oregon. Withholdings out of Oregonian paychecks are considerably noisy, but two clear trends stand out. First, growth has slowed in the past year or two. Second, growth remains positive. There has yet to be any real concerning numbers that indicate economic growth is teetering on the brink just yet.

Bottom Line: The economic outlook remains intact. Preliminary data gets revised. The two recent employment reports showing losses, to a large degree, are offsetting huge gains in the previous months. So to those looking to pin the losses on the wildfires or the minimum wage, well, these are not the data you are looking for. Our office is currently working on the next forecast, which will be released Wednesday, November 29th.

Posted by: Josh Lehner | October 10, 2017

Oregon’s Timber History, An Update

Over the past year a cross-agency team has identified and geocoded current and former mill sites in Oregon. The team is made of brownfield program managers from DEQ and OHA, folks from DLCD, Business Oregon, and Portland State researchers. Their ultimate goal is to find ways to repurpose some of these sites, however you first have to identify them. I was brought in to provide a summary and outlook of the timber industry, largely based on our office’s 2012 report. I argue that report is one of the most informative pieces our office has done. It also continues to be quite popular as web searches for things like “1970s Oregon timber history” are a daily occurrence. For these reasons it was time to update our Oregon timber industry work. What follows is an industry recap and a new set of slides.

In the 1970s when annual Oregon timber harvests totaled more than 8 billion board feet, the industry was a huge economic force. The sector directly employed 80,000 or so workers at wages some 30% above the statewide average. As such, the timber industry accounted for 1 out of every 10 private sector jobs across the state, 12% of state GDP, and 13% of all private sector wages. While there were timber-related jobs in every part of the state, these impact figures were considerably larger in many rural communities, particularly in eastern and southern parts of the state.

Beginning with the severe early 1980s recession the industry has undergone massive changes. At that time the industry restructured as interest rates soared and the housing market collapsed. Many of the existing mills had come to the end of their life cycle and needed to be retooled. There was also increased market competition with lumber coming from southern U.S. states and British Columbia. The result by the end of the 1980s was a more efficient, yet smaller in some ways industry. Harvest levels and output had returned but employment never recovered: industry jobs in 1989 were 17% below 1979 figures. Then the federal restrictions took hold, sending the industry on a downward spiral that was only briefly, temporarily interrupted during the go-go days of the housing bubble.

Today, annual Oregon timber harvests are a bit less than 4 billion board feet. Some of the decline is due to the age and stock of the forests; you can only cut old growth once. Private harvests are down 20% since the 1970s, however, by far the biggest driver is that logging on federal lands is down nearly 90%. Direct industry employment is now about 30,000, or a decline of 60 percent. Due to automation, increased competition, large supply of former industry workers and the like, wages have stagnated. Today the industry average wage is equal to the statewide average. Timber-related jobs are still middle-wage jobs, however they no longer pay a premium like they used to. These same trends impact manufacturing overall.

The industry outlook at this point is pretty steady. Demand for raw logs from China is ebbing some, however the ongoing U.S. housing recovery is encouraging. Our office’s expectations, based on input from our advisors, is for both harvest levels and employment to hold steady around levels seen today. We likely need a big event to drastically change the outlook. To the upside such an event would be a change in federal policy, specifically larger timber harvests, not the Canadian lumber tariff. To the downside we’re looking at a recession, particularly one where housing dries up. Given the fundamental underbuilding of housing in recent years, this not entirely a foregone conclusion next recession. It depends some upon the nature and severity of the next business cycle. Furthermore, as noted the other day when discussing natural disasters, the loss of forested lands can impact future economic growth as you cannot log a forest that no longer exists. Of course it matters where such land is located and who owns its.

Finally, a few additional notes.

  • First, the economic shock the Timber Belt has taken is not unlike what the Rust Belt, Corn Belt and old textile mill towns in the south experienced. However, people moved away from those places when the jobs left. In the Timber Belt, people keep moving in. Furthermore, even as the 1990s were largely characterized by a strong national economy, poverty rates throughout much of the Timber Belt actually rose.
  • Second, our office talks about the Changing of the Guard from a statewide preservative. The rise of high-tech has pretty much directly offset the decline of the timber industry. Of course this isn’t entirely a fair comparison, and the geographic location of these jobs are considerably different. One advisor notes that it doesn’t have to be an either/or situation. Why can’t we have both sectors strong?
  • Third, Gail Krumenauer at the Oregon Employment Department has dug through the data to better account for industry employment. Gail finds some 55,000 industry jobs statewide in 2015. This is very likely a better estimate to use. However that work uses a broader industry definition than we use, but more importantly Gail does a really good job of identifying independent contracts and the like, along with public sector employees tied to the forest sector. That does make reconfiguring the data backwards more challenging than our office’s work presented here. That said, there is no question that whatever data series and estimates one uses, the long-term trends remain the same. Do read Gail’s work for a more detailed account of the current landscape of employment.
Posted by: Josh Lehner | October 6, 2017

Oregon’s Shifting Retail Landscape (Graph of the Week)

There’s no question that online sales have been, and will continue to change the retail landscape. However, it can be hard to show exactly how this is influencing and impacting standard economic data. Sure, Census reports e-commerce sales as a share of all retail sales on a quarterly basis, but that’s simply a slowly increasing figure over time that has yet to breach 10%. Here in Oregon we have even greater data limitations, so consider this a first pass at trying to show the changes.

The upshot is there has been a clear impact on employment within the retail subsectors that seem to face the most online competition. Given data availability for Oregon, these subsectors include clothing, shoe, and jewelry stores, sporting goods, hobby, book, and music stores, and department and other general merchandise stores. For now we are calling these Brick and Mortar retailers as shorthand for writing out all those different types of stores. While jobs in Brick and Mortar retailers have stopped growing in the past 18 months, even down a couple hundred, they have been more than offset by other gains related to retail. For example, employment continues to grow in e-commerce related sectors like nonstore retailers (online, mail order, etc), couriers and messengers (delivery trucks), and warehousing and storage jobs. These e-commerce jobs are up around 2,300 in the past 18 months. This transition is resulting in more jobs overall, even as the type of jobs and the nature of the work do shift.

Furthermore, it is important to note that retail jobs overall continue to increase due to gains in all other retail subsectors outside the Brick and Mortar ones. Employment at car dealers is growing, following trends in car sales. Jobs are increasing at home improvement stores, grocery stores, and now OLCC licensed recreational marijuana retailers. The calls of a retail apocalypse are overblown. That said, there have been numerous closures among large, national retailers. Some of which are painful not just for the workers, but also the individual developments and downtowns that are losing their anchor tenants. Repurposing these former retail spaces is a high priority.

In terms of the outlook, our office forecasts retail jobs to increase in Oregon, even with the shift toward online and some minimum wage impact. The biggest reason is that Oregon continues to see a growing population, and therefore increasing consumer demand. The old adage is retail follows the rooftops. Now, we do not expect exceptionally strong gains, somewhere around 1% per year for the next few years given the impact of these larger shifts. We also know there have been additional announcements of large distributions centers in the Willamette Valley. As such the ongoing retail shift will continue.

Again this is our first effort at trying to quantify and show some of these changes. Online competition is far reaching and has influenced many different trends (e.g. travel agents), though they are hard to isolate in the data. We welcome your input and feedback!

For more please see this article by Oregon Employment Department’s Ainoura Oussenbec from this summer talking about trends in the retail industry and OED’s projections.

Posted by: Josh Lehner | September 28, 2017

Large Metro Transformations (Graph of the Week)

Recessions have a way of reorienting or even restructuring an economy. Some industries fall back, others step forward. These changes propel entire regional economies ahead of others depending upon the nature of the business cycle. As we document in our new research report, Portland has been Top 5 for high-wage job growth, rising levels of educational attainment, and household income gains. However, Portland is not alone when it comes to seeing big gains, as shown below in this edition of the Graph of the Week.

Many of the other metros seeing similar growth to Portland are no surprise. These include Austin, the Bay Area, Denver, and Seattle, among others. However, there are a few surprises. In terms of relative rankings, the only other metros besides Portland to see such sizable jumps were Grand Rapids, MI and Pittsburgh, PA. While similar in percentage changes to Portland, these other two metros were starting from a different base. I would also argue that the changes in Grand Rapids and Pittsburgh have been even more transformational than in Portland. Portland went from the top third to the top fifth of metros for these measures. Grand Rapids went from 61st to 43rd for income, and 73rd to 51st for educational attainment. Pittsburgh, already a highly-educated metro, went from 38th to 22nd for educational attainment, but from 81st to 58th for household income. Those are massive gains, but different in nature than those seen here in Oregon.

Posted by: Josh Lehner | September 28, 2017

REPORT: Portland in Transition

The new Census data shows that the recovery and expansion has now reached all corners of the Oregon economy. Not all industries, segments of the population, or regions are in the same place given each regional business cycle was a bit different. However, we are now seeing gains across the board. The trajectory, at a minimum, is pointing in the right direction.

One place where the improvements really stand out is in the Portland metro area. It makes sense given job growth returned first to the large metros across the country, so they have been in expansion the longest. That said, when stepping back and looking at the business cycle as a whole, and comparing the 100 largest metro areas in the country, the gains in the Portland region are considerable. Portland’s growth has been transformational, and not just when it comes to the apartment boom in the urban core. To date, it is clear that Portland is transitioning as it pulls away from its former economic peers.

Below is a short, high level summary of these findings along with a more complete slide deck for those interested.



Posted by: Josh Lehner | September 21, 2017

Oregon Metro GDP, 2016

Hot on the heels of metro level household income data, we now get the annual metro GDP figures as well. In stepping back and looking at the bigger picture, the metro GDP growth looks like one would expect. There is a good reason for that. More in a minute.

Oregon is outperforming the typical state for jobs, wages, and GDP. As such, all of our metros are above average in the most recent data, which makes sense. The specifics can vary a bit, particularly as Albany and Bend register Top 10 in the nation growth. Albany’s growth is led by manufacturing, both durable and nondurable goods. Bend’s by health, professional and business services, and finance. That last one is interesting as Oregon is not a financial hub. Certainly something to look into in the future if it continues.

This second chart compares metro GDP over the entire business cycle. Where are you today relative to before the Great Recession? Here, again the patterns looks like you probably expect. All metros are in the top half or better. Oregon is more volatile. We fall farther in recession so have further to regain in expansion, etc. However one metro sticks out. One is not like the others.

Let’s take a little closer look at the Corvallis MSA (Benton County.) In looking at the industry level GDP, the issue is all about manufacturing value-added. Hmm. This is a really big rise and subsequent fall. The timing is also of interest given the declines didn’t happen until a couple of years after the recession.

What I suspect is going on here is more about how metro GDP is calculated than what is actually happening in Corvallis. What BEA does is calculate state GDP by industry. BEA then shares that down to the metro areas based on earnings by industry. For example, and these are made-up, simplified numbers, if Corvallis has 10% of Oregon’s manufacturing earnings, then basically Corvallis gets 10% of Oregon’s manufacturing value-added. This is fine so far as it goes. However when a particular industry in one region is doing exceptionally well, then this sharing down method yields skewed results. I think walking through a few charts is best to explain this and show the limitations of the data/methodology.

With Oregon GDP there is one, and only one industry that can move the needle like this: computer and electronic products manufacturing. This is also an industry that has a very specific geographic footprint for the most part: Portland, where the vast majority is, and Corvallis. At the state level you can see that the rise and fall of overall manufacturing GDP is all about computer and electronic products. While we don’t have access to the firm level estimates, we know a lot of this growth is due to new semiconductor technology. Each generation of chips, and the fabs that make them are more productive and valuable than the previous generation. It also requires massive investments every handful of years. That research and development occurs in the Portland region. The computer and electronic products in Corvallis are more printer technology related, which has not seen the same growth and investments like semiconductors in recent decades.

Note: Detailed 2016 industry data is not yet available, that is why the total line extends to 2016 and the detail does not.

Now, we know that manufacturing employment in the Corvallis MSA is down and down considerably in the past decade, while Portland’s manufacturing employment has done reasonably well, compared with most regions of the country. However, when you take the state data and share it down to the regions some of that growth is distributed too. In this case, it means Corvallis has received a share of the Portland area investments and expansions because they are classified within the same industry.

And the way you make all of this square, is seeing huge productivity gains (value-added per worker). Are Corvallis manufacturing workers twice as productive as the typical manufacturing worker statewide? Possibly, but unlikely. Some of this, no doubt, is due to the local industrial mix. If a local economy has a mix of higher productivity industries and fewer lower productivity industries then the total will be high. That’s at play here, but so too is the metro GDP methodology.

So, long story short, local level GDP data should be taken with a grain of salt. It is indicative of broad trends and what is happening in the local economy, however imperfect it may be. This is in no way meant to disparange BEA, they are doing the best they can with limited data. They do a great job looking at industry level value-added at the state level. This is fantastic data to have and helpful when looking across a host of economic metrics.

Posted by: Josh Lehner | September 19, 2017

Oregon Metro Incomes

As our office continues to upack the latest Census data, we will share some of the findings here, and in our quarterly forecast presentations and documents. Today, a quick look at household incomes across Oregon’s metropolitan areas. We will wait for the 5 year ACS, and SAIPE data later this fall before digging into rural trends.

We start first with the state’s largest metro, Portland. Inflation-adjusted incomes now stand nearly 9 percent higher than before the Great Recession. The typical large metro has yet to fully recover its losses. As I dug into the data, I was honestly surprised at how well Portland has done across a host of key economic metrics. I will have more in the next week or so on these findings.

Next we turn to the Willamette Valley. This is an updated chart we discussed a bit more in-depth this summer and it comes from some of the Salem outlook work I did as well. Like Portland, the trends here are about an improving economy beginning to approach full employment.

Third we take a quick look at Bend, the boom-bust phoenix of our time. Out of the 50 worst housing bust metros in the nation, Bend ranks 5th best for median household income, and has clearly outperformed the typical one. The economy is likewise approaching full employment, when the feel-good part of the business cycle comes into view.

Finally we take a look at the Rogue Valley. Here the story is a bit different. Medford is also one of the worst housing bust metros, and against that backdrop, Medford is doing OK. Household incomes in Medford have declined less than in the typical housing bust region, and have regained a bit more than usual. That said, Medford, along with Grants Pass have yet to regain their Great Recession losses and their regional trends differ from the rest of Oregon’s metro areas. Previously our office looked at Grants Pass (Josephine County) and expected the income numbers to turn around. Not so in the 2016 ACS data at least. This warrants a deeper dive once the microdata is available in a couple months and is on the research agenda.

Posted by: Josh Lehner | September 14, 2017

Poverty and Progress, Oregon Update Edition

This morning the Census Bureau released the 2016 American Community Survey data. There is a ton to unpack here and even more once the microdata is released later this year. In the coming months our office will update and share some of this work.

In order to not bury the lede regarding the 2016 ACS data, Oregon’s household income and poverty numbers look very good. I don’t want to oversell the data, but they are among the best readings in Oregon’s modern history. The underlying, or internal dynamics behind the topline data are even better. This does not mean the economy is perfect, or without issues. We know there remain substantial problems and challenges. It does mean, however, that considerable progress has been made during the current economic expansion following the financial crisis. These gains are not evenly distributed across the state as each regional economy is at a somewhat different point in their local cycle, but taken as a whole, Oregon is finally doing OK again. Oregon is once again close to where it was during the late 1970s, late 1990s, and arguably better than the peak of the housing boom. Importantly, should the expansion last another couple of years, which many economists expect, we are very likely to finally break through many of the stagnant trends of the past 15-20 years. Whether that will be temporary or permanent is not yet known. However the economic trajectory in recent years has been quite good, particularly here in Oregon.

In 2016, Oregon’s median household income, after adjusting for inflation, is at or near the highest it has ever been. I only qualify that due to the margin of error surrounding these estimates and depending upon which inflation measure one uses. Clearly, however, income for the typical Oregon household is back to where it was, if not a little better than at the peak of the dotcom and housing bubbles. Furthermore, the gap between Oregon’s household income and the U.S. is effectively gone. Oregon has typically been 2 or 3 percentage points lower that the U.S. but in 2016 Oregon is just a hair below. And that gap is not statistically significant, for what it’s worth. See here for more on the different measures of income and how Oregon and the U.S. compare.

In looking at the drivers of median household income in Oregon last year, the underlying dynamics look even better. These gains are all about a strong economy approaching full employment. The number of Oregonians with a job is up about 3%. However the number of Oregonians working full-time is up nearly 5%, and for these full-time, year round workers their earnings are up over 6%, nominal. Those are increases in median earnings! Inflation-adjusted that is a 4.8% gain; a tremendous improvement.

Possibly the most encouraging part of these improvements are the gains seen for households in the middle and bottom part of the income distribution. In 2016, incomes for these households are once again above pre-Great Recession levels after adjusting for inflation. Remember, these households are fully reliant upon a strong economy to generate any sort of income gains. High-income households generally have a high-wage job and other sources of income like capital gains, rental income, and the like. Low-income households only have wages, and in some cases the safety net.

Finally, the strong economic improvements that are translating into income growth for all households are now also pulling more Oregonians out of poverty. Oregon’s poverty rate in 2016 stands at 13.3% and below the national average. That said, the poverty rate is still a bit above where it was in 2007, and remains a couple percentage points higher than in 1979 and 1999.

Poverty rates, needs-based caseloads, and demand for other social services are among the last things to turnaround. Oregon is once again squarely in the feel-good part of the business cycle. Further progress remains, however the economy is getting there.

Posted by: Josh Lehner | September 12, 2017

Poverty and Progress, U.S. Edition

This morning the Census Bureau released new data on U.S. poverty for 2016. Wages are up a little, but considerably more people are working, particularly those working full-time (HT: Jed Kolko). As such progress is being made and poverty continues to decline. As our office has pointed out repeatedly in the past year, the Great Recession did not kill the business cycle. It just felt that way given the severity of the recession. Now that the expansion is reaching all corners of the economy and incomes are rising for those in the middle and bottom part of the income distribution, it is clear the feel-good part of the business cycle is here. Of course there is still much more room for further improvements. Household incomes for most Americans and Oregonians have been flat for 15-20 years at this point, however there are fluctuations around this stagnant trend. To date we’re on the upward trend but incomes are still at or below where they were in the late 1990s. Should the expansion continue for another year or three, household incomes will finally break through this long-run malaise. We are getting there, it’s just been a long and painful road.

Oregon poverty data and for that matter all of the 2016 American Community Survey data will be released on Thursday. Expectations are for another good uptick in household income and decline in the poverty rate. For now here are a couple of high level U.S. charts from the Census report. Note that there is a 2013 methodological break in the Census data. Some historical comparisons are more difficult to make than others, depending upon the exact series you examine. That said, this change does not take away from the fact progress is being made in recent years. Also, data breaks, or series breaks are the worst.

For more on our office’s Poverty and Progress series see our previous work on the business cycle overview, looking at the Portland region, Oregon overall, Josephine County (Grants Pass MSA), historical look at regional poverty in Oregon, and how some needs-based caseloads change over the business cycle. Note that the best local level poverty data comes from the Census’ Small Area Income and Poverty Estimates (SAIPE), which will be released in December.

Posted by: Josh Lehner | September 8, 2017

In The News: Brewery Closures and Wages

Craft beer sales have slowed. There have been a few high profile brewery closure announcements. Even AB Inbev is downsizing (layoffs) their so-called High End which is made up of all their craft brewery acquisitions in recent years. This combination has some folks once again contemplating a craft beer bubble, or an industry shakeout. All of these big picture trends hit close to home here in Oregon as well. Obviously 10 Barrel and Hop Valley were sold not too long ago. In-state beer sales have slowed or declined for many of the state’s largest breweries. And a number of Oregon breweries announced they were closing, including Southern Oregon Brewing last year and The Commons this year.

One key way to think about this is that the craft beer market is maturing. Making good/craft/independent/local/etc beer is no longer necessary and sufficient to be a successful brewery. In a mature market, good business decisions and strategies matter more. As we wrote in our beer report last year:

To date, Oregon brewery failures have been relatively few although there have been some and more than the conventional wisdom realizes. The failure rate is approximately 2 percent compared with 8 percent for all Oregon industries combined. In any market, there are companies that do better or worse. In a growing market, the winners clearly outnumber the losers. However as craft beer slows overall, the number of firms struggling or losing market share are likely to increase.

And I think this is what we’re seeing play out a little bit more. Now, I haven’t done all the detailed data work for the past year or two, but I don’t think the actual closure rate has increased much, if at all. However, I do think the brewery closure rate will increase in the coming years. It is likely to converge toward the rates seen in other industries. Currently, the growing and largely successful beer industry is enticing even more breweries to enter. Eventually this will lead to (over)saturation and for closures to rise as a result. Given that consumer trends, size of brewery, location of brewery and the like all play huge roles, I don’t know where exactly the industry is in this process, but it is in there somewhere.

Here in Oregon we’re seeing 4 or 5 brewery closures per year at a 2% rate. The overall closure rate for all industries across the U.S. is 7-7.5% with manufacturing more like 6%. In a different data set, Leisure and Hospitality closures are more like 9%. At these rates we’d be talking about 15-20 brewery closures here in Oregon in any given year. Clearly we’re not there yet, and not even that close.

Bottom Line: A maturing craft beer market has many implications, including the importance of sound business practices. However a handful of high profile closure announcements are not likely indicative of big industry problems. The pace of brewery closures remains considerably low and is likely to rise in the coming years even if the industry has no significant problems.

For more on the current state of the beer industry and on closures, see this The Drinking Classes interview with Bart Watson, chief economist for the Brewers Association.

Addendum: While our office talks about the growth in Oregon’s alcohol cluster and compare it with the software industry, one huge difference in these jobs are wages. Software, on average, is around $90,000 per year, whereas the alcohol cluster overall is about 1/3 of that. Jeff Alworth, author of The Beer Bible and the Beervana blog, wrote recently about brewer wages . Jeff cites some third party numbers saying Assistant Brewers make $30-40,000 per year, Head Brewers $35-47,000 and Brewmasters $40-76,000. These are not too far from industry averages seen here in Oregon (breweries, NAICS 31212, $37,100). Brewing is a growth industry, it is value-added manufacturing, it is traded sector and all that stuff, but as Jeff writes, “these are not terrible salaries, but neither are they going to line a person’s garage with Teslas.” These are also salaries that are in-line with manufacturing and production occupations overall.

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